Tuesday, November 29, 2011

Spain’s short-term borrowing costs surge - (www.ft.com) Spain is paying more to borrow for a year than it was paying to borrow for 10 years last month in a sign that Madrid risks being dragged back into the centre of Europe’s debt crisis. In an auction of €3.16bn of short term treasury bills Spain was forced to pay an average of 5.022 per cent to borrow for a year – a level higher than its 10 year bond was yielding in October. For much of the last two years concerns over Spain’s budget deficit caused investors to focus on the possibility of the eurozone’s fourth-largest economy becoming the next domino to fall after Greece, Portugal and Ireland. Spain, however, in recent months has been overshadowed by worries about the political instability and sheer indebtedness of Italy, whose borrowing costs over the summer overtook Spain’s for the first time since the start of the eurozone crisis.

Congress corrupted by moneyed interests to the point of instability - (www.bostonreview.net) In the first quarter of this year, what was the number one issue that Congress addressed? In the middle of two wars, a huge unemployment problem, huge budget deficit problem, still issues about health care, still no addressing global warming—what’s the number one issue they addressed? The banks’ swipe-fee controversy. Why do you address the banks’ swipe-fee controversy? There is not one congressman who decided to run for Congress because he thought, “I’m going to deal with the problem of the banks’ swipe fees.” It’s only because if you can dance as a congressman with a little bit of uncertainty of which side you’re going to come down on in this controversy, millions of dollars gets showered down upon you because there’s $19 billion on the table depending on how this issue is resolved. So there Congress is driving the agenda in part because of the fundraising opportunities the agenda produces. If they didn’t have a fundraising opportunity from the agenda like that, they would maybe drive their agenda differently.

Italy's Monti centre stage, France "alarm bells" - (www.reuters.com) France came under heavy fire on global markets on Tuesday reflecting fears that the euro zone's second biggest economy is being sucked into a spiraling debt crisis after a warning that Paris's failure to adapt should be "ringing alarm bells". Nervous markets also showed concern about whether Italy's Mario Monti and new Greek leader Lucas Papademos, unelected European technocrats without a domestic political base, can impose tough austerity measures and economic reform. European Central Bank President Mario Draghi has predicted the 17-nation currency bloc will be in a mild recession by the end of the year, a view underlined by data showing the economy barely grew in the third quarter and faces a sharp downturn.

IMF warns on Chinese financial system - (www.ft.com) The Chinese financial system faces “a steady build-up in vulnerabilities” that require the government to relax its grip on banks, the exchange rate and interest rates, the International Monetary Fund said in its inaugural evaluation of China’s financial sector. The IMF applauded the progress that China has made in giving freer rein to market forces and strengthening regulation but warned of a series of short-term risks facing the world’s second-biggest economy, from defaults on infrastructure projects to the rise of shadow banking. “While the existing structure fosters high savings and high levels of liquidity, it also creates the risk of capital misallocation and the formation of bubbles, especially in real estate,” said Jonathan Fiechter, head of the IMF team that conducted the analysis.

There's Something Fishy About The White House's $433 Million Investment In A Smallpox Vaccine - (www.businessinsider.com) Several critics believe that the Obama administration’s $433 million investment in the new ST-246 smallpox vaccine reeks of scandal. How could a multimillion dollar investment in an antiviral pill that could cure smallpox be scandalous? Part of the reason lies in the word “could.” The drug has never been tested on humans. See, smallpox was all but eliminated in 1978 and the U.S. already has vast stockpiles of the original vaccine. Why would the current administration push so vigorously to invest millions of dollars in what could rightly be described as an unnecessary (and untested) drug? As the saying goes, “follow the money.” The company that scored the federal contract is called Siga Technologies and they won it through a “sole-source” procurement; they are the only company that will be doing business with the Feds. And here’s the best part: the controlling shareholder of Siga Technologies is billionaire Ronald O. Perelman, one of the world’s richest men and a longtime Democratic Party donor, reports the Los Angeles Times. Moreover, back in June 2010, Siga named Andrew Sterns (former head of the SEIU) to its board. That certainly raises some eyebrows. Surprisingly enough, the deal gets even more suspicious.

Monday, November 28, 2011

Cities Hit as Funds From Bonds Pay Other Bills - (online.wsj.com) Cities and states across the country are using money designated for specific purposes—such as fixing roads or sewers—in order to fill financial holes elsewhere, according to public officials and records. The moves are exposing municipalities to controversy, as federal regulators and local auditors are more heavily scrutinizing their finances to protect bond buyers and taxpayers. In Miami, the Securities and Exchange Commission is wrapping up an investigation into whether the city used funds intended for roads and other purposes to fill budget gaps elsewhere, according to people close to the probe. Bondholders are suing, saying the moves obscured the city's true finances. The city's former budget director is also suing, claiming he was fired for cooperating with the SEC and the Federal Bureau of Investigation. Then, in late October, the city's former auditor sued, alleging in the suit that he lost his job because he flagged problems then "participated, at the request of the Securities and Exchange Commission, in an investigation into whether the City of Miami was engaging in behavior tantamount to stock fraud in the marketing of its municipal bonds." Both so-called whistleblower cases are filed in a circuit court in Miami-Dade County.

'60 Minutes' Blows The Lid Off Congressional Insider Trading - (www.businessinsider.com) Members of Congress can legally make trades on non-public information they obtain during their official duties, CBS News' '60 Minutes' reported on Sunday night. Branded 'honest graft,' lawmakers can use market-moving information that they learn in congressional committees to trade on the stock market — actions that likely would carry stiff jail and civil penalties if they did not hold public office. In one example, Steve Kroft reports that Rep. Spencer Bachus (R-AL), now the chair of the House Financial Services Committee, bet against the market in the days before the 2008 financial crisis hit — after getting 'apocalyptic briefings' from Fed Chairman Ben Bernanke and then-Treasury Secretary Hank Paulson. Kroft also raises questions about the trading patterns of Speaker of the House John Boehner and House Minority Leader Nancy Pelosi — and the real estate purchases of other senators and representatives. The report relies heavily on the work of Peter Schweizer, a fellow at the conservative Hoover Institution, whose work '60 Minutes' independently verified.

UniCredit Posts a Record $14.5 Billion Loss on Impairments; Shares Tumble - (www.bloomberg.com) UniCredit SpA (UCG), Italy’s biggest bank, posted a surprise 10.6 billion-euro ($14.5 billion) loss in the third quarter, the biggest in the company’s history, amid trading losses and write-downs on acquisitions. The stock slid as much as 9.6 percent. UniCredit said today that it plans to raise as much as 7.5 billion euros in a rights offering, and it took an impairment charge of 8.7 billion euros, including goodwill on purchases in Ukraine and Kazakhstan. Excluding one-time items, the quarterly loss was 474 million euros. Analysts expected profit of 7.4 million euros, according to the average of 12 estimates compiled by Bloomberg. UniCredit, which is selling stock to plug the biggest capital shortfall among Italy’s lenders, also scrapped its dividend and said it will exit non-strategic units. The bank plans 5,200 job cuts through 2015 to bolster its finances as Europe’s sovereign-debt crisis threatens to engulf Italy.

Italy Obsessed by ‘Lo Spread’ as Yields Surge - (www.bloomberg.com) As Italy struggles to survive the European debt crisis, watching “lo spread” is becoming a national obsession. The yield difference between Italian 10-year government bonds and German bunds surged to a record 5.5 percentage points on Nov. 9 after the nation’s borrowing cost breached the 7 percent threshold that prompted Greece, Portugal and Ireland to seek bailouts. A day later, Prime Minister Silvio Berlusconi agreed to step down when an emergency budget package was passed. Italian lawmakers approved the austerity measures Nov. 12, clearing the way for Mario Monti, a former European Union competition chief, to try and form Italy’s next government. “I think it’s very scary and we are all concerned,” Gianluca Brozzetti, chief executive officer of luxury-goods maker Cavalli Group, said in a Milan interview.

EFSF denies report that it bought its own bonds - (www.reuters.com) The euro zone's bailout fund said on Sunday that it did not buy its own bonds last week, denying a British newspaper report that it spent more than 100 million euros ($137 million) to cover a shortfall of demand. Britain's Sunday Telegraph said that the EFSF had to step in after banks leading the deal were only able to find about 2.7 billion euros of outside demand. The 10-year bond sale raised 3 billion euros last Monday. "The EFSF did not buy its own bonds and the book was 3 billion euros," an EFSF spokesman said, referring to the 3 billion euros raised in last Monday's 10-year bond issue. Top officials of the EFSF have said the modest 3 billion euro issue was a reflection of the unstable market conditions.

Sunday, November 27, 2011

Pity anyone who took the tax credit to buy a house - (www.marketwatch.com) Call it whatever you want. But as foreclosures surge again and house prices continue to slide, new data out Monday reveals more of the grim verdict on the $26 billion federal program in 2009 and 2010 to offer tax credits to home buyers. You may remember that between the spring of 2009 and September 2010 the government handed out credits of up to $8,000 to induce people to buy a new home. It was supposed to gee up the housing market. How’d that work out? Zillow.com, the real estate information company, says the average price of an American home fell again last month to $171,500 — the lowest level in eight years. That’s down 4.4% from a year ago, although it’s been about stable over the summer. Now compare the average prices with those that people paid in 2009 and 2010, when they took advantage of the credits. According to Zillow, prices during that time averaged about $186,000. In other words, based at least on average prices, you’ve lost about $14,500 — nearly twice the value of the credit. Stan Humphries, Zillow’s chief economist, says the credits, effectively expired in June 2010, when prices nationwide averaged $182,000. Since then we’re down $10,500.

More than half of Sacramento houses worth less than their mortgages - (www.sacbee.com) Housing prices in Sacramento have fallen to pre-boom levels as more than half of homes in the region are now worth less than their mortgages, a new report said. Zillow, the Seattle-based real estate website, said its index for Sacramento home prices for the third quarter dropped 11.2 percent to $200,000 compared to the year-earlier quarter. The price decline comes as 50.9 percent of all mortgages in the region are now underwater, which is nearly double the national average, the company said. In September, foreclosure sales represented nearly 40 percent of all homes sold in the Sacramento region and nearly half of all local resales went for a loss, Zillow said. "We're clearly dealing with a crisis of confidence that is keeping potential buyers on the sidelines, fueled largely by high unemployment and more general economic uncertainty," said Stan Humphries, Zillow's chief economist.

Wealthy Qualify for Low-Income Loans - (www.bloomberg.com) Colorado’s San Miguel County is known as a winter playground with world-class skiing and mountain vistas, a place where homes can sell for millions of dollars. If you’d like to buy, the Federal Housing Administration -- the agency created to aid low-income and first-time homebuyers - - can help. Not far from the ski resorts of Telluride, an FHA- approved borrower can pick up a five-bedroom, four-bath house with stainless steel appliances and a two-car garage for about $600,000. The agency, created during the Great Depression, has found itself insuring high-dollar loans in hundreds of counties across the country, from New Jersey to Florida to Arizona. Such loans are drawing renewed scrutiny as lawmakers debate whether to expand FHA lending to even wealthier borrowers. “It’s not the intent of the FHA to facilitate people buying McMansions,” said Representative Scott Garrett, a New Jersey Republican opposed to higher loan limits. “The intent is to help the average American buy the average house.”

South Florida overflowing with underwater mortgages - (www.sentinel.com) People owing more than their homes are worth remains a big problem in South Florida, but it isn’t nearly as bad here as it is elsewhere. Does that qualify as good news? Roughly 47 percent of all single family homes with a mortgage in the three counties are “underwater,” up from 42 percent a year ago, according to third-quarter data from Zillow.com. The figure far surpasses the national average – about 29 percent. Las Vegas leads the nation, with more than eight out of 10 single family homes with a mortgage underwater. Reno is second at 71 percent and Phoenix third at 66 percent. What’s more, eight Florida metro areas, including Jacksonville, Tampa and Ocala, have higher percentages than South Florida. Those who owe more than their homes are worth bought at or near the peak of the housing boom and then watched as prices plummeted. Homeowners who are underwater are stuck in their properties and are more likely to fall into foreclosure.

Europeans transformed private bank debt into public debt, just like US - (www.triplecrisis.com) The European sovereign debt crisis is little more than a huge ‘bait and switch’ perpetrated on the publics of Europe, by their governments, on behalf of their banks. We need to remember that what we refer to today as the ‘European Sovereign Debt Crisis’ began as a private sector financial crisis back in 2008, when ‘too big to fail banks,’ writing deep out of the money options on taxpayers, quite unexpectedly (to some) blew up. Fearing a financial Armageddon, governments transformed private bank debt into public debt via bailouts, lost revenues, lower growth, higher transfers, and yawning deficits. The unavoidable result across the European continent was a massive increase in government debt. While painting this as a story of fiscal irresponsibility has some plausibility in the Greek case, it simply isn’t true for anyone else. The Irish and the Spanish, I and S in the eponymous ‘PIGS’ were, for example, considered ‘best in neoliberal class’ in terms of debts and deficits until the crisis hit. Public debt is a consequence of the financial crisis, not its cause.

Saturday, November 26, 2011

Ala. county votes for largest municipal bankruptcy - (finance.yahoo.com) Leaders of Alabama's most populous county on Wednesday voted to declare an estimated $4.1 billion bankruptcy, the largest for a municipality in U.S. history. Two months after it seemed Jefferson County had struck a deal to settle the debt, the commissioners took the action. It came after spending about six hours over two days meeting with its lawyers to discuss legal options. Those options included a Chapter 9 bankruptcy filing and a settlement with creditors on the county's $3.14 billion sewer debt. Jefferson County has been trying since 2008 to avoid filing bankruptcy over the debt, which resulted from a mix of outdated sewer pipes, the lagging economy, court rulings and public corruption. At the same time, it faces a separate shortfall of as much as $50 million in its operating budget because courts struck down a major local tax as unconstitutional.

Dear Committee: Mains street says look at pensions - (www.nytimes.com) THE so-called supercommittee in Congress has until Nov. 23 to find more than a trillion dollars of new savings in the federal budget. Here’s one idea: Stop reimbursing the costs of pensions and other retirement benefits at huge, and hugely profitable, defense contractors. Over 10 years, such a move could save an estimated $30 billion — the amount by which these pensions are collectively underfunded. (That figure could change, depending on pension performance.) True, that might seem like a drop in the bucket, given that the committee’s 12 members are trying to save $1.2 trillion over all. But examining this longstanding practice seems worthy in lean times. The government also promises to help defense companies shore up their pension funds when they become underfunded. Many of these funds have lost money in recent years in declining financial markets or on bad investments, so the bill for taxpayers has been growing.

UK banks face huge losses on Italian debt - (www.telegraph.co.uk) British banks could be among the hardest hit by the Eurozone financial crisis because they are exposed to tens of billions of pounds of Italian debt. The latest figures published by the UK’s four biggest banks show they hold a total of £42bn of Italian debt. Barclays has by far the largest overall holding at £25.7bn, of which just over £4bn is in the form of a direct exposure to the Italian government. Taxpayer-backed Royal Bank of Scotland has the second largest total exposure at £9.7bn, though just £400m of this is to the Italian government debt after the bank sold off more than £2bn of the country’s bonds over the summer. Like RBS, HSBC has also in recent months moved to cut its holding of Italian debt and currently holds about £4.3bn, of which about £1.6bn would be directly at risk in the event the country becomes unable to meet its financial obligations to its creditors.

Geithner tells Europe to "move quickly" as instability hurts US and Asia - (www.telegraph.co.uk) Speaking at the Asia Pacific Economic Cooperation (APEC) summit in Hawaii this weekend, Mr Geithner said: "We are all directly affected by the crisis in Europe, but the economies gathered here are in a better position than most to take steps to strengthen growth in the face of these pressures from Europe." Mr Geithner added that the basic framework for the European recovery was good. “But we need to see it put in place with the speed that markets require and with the force that restores confidence," he said. "They’re moving ahead. We just need to see them move a little more quickly and with a little more force behind it.” Despite being thousands of miles away, Europe has been the main preoccupation at the meeting of Pacific Rim leaders in Honolulu.

Jumbo mortgages may be next in line to default - (www.washingtonpost.com) Do you have a big mortgage and good credit scores but not much equity — maybe you’re even underwater? Do you see little chance that your home’s market value will improve much during the coming three to seven years? If you answered yes to both questions — and thousands of homeowners across the country could do so — new research suggests that you are in a category that lenders need to worry about most: prime jumbo borrowers who once were thought to be among the safest bets but who now are the most likely to opt for a strategic default and walk away from their homes. In a study released Oct. 31, the ratings agency Moody’s said that based on its analysis of mortgage-backed bond portfolios, homeowners with jumbos now constitute “greater strategic default risk” than any other type of borrowers, including subprime.

This 2006 Blog Post By Roubini Really Was Incredibly Prophetic - (www.businessinsider.com) Getting well-deserved praise. The key thing here is how spot-on his assessment of the pain points were. This paragraph nailed it: And unfortunately, the lack of serious economic reforms in Italy implies that there is a growing risk that Italy may end up like Argentina. This is not a foregone conclusion but, if Italy does not reform, an exit from EMU within 5 years is not totally unlikely. Indeed, like Argentina, Italy faces a growing competitiveness loss given an increasingly overvalued currency and the risk of falling exports and growing current account deficit. The growth slowdown will make the public deficit and debt worse and potentially unsustainable over time.

Hungary May Be Pushed to Junk Grade - (www.bloomberg.com) Hungary’s sovereign credit grade may be cut to junk this month afterStandard & Poor’s Ratings Services placed the country’s lowest investment grade on “CreditWatch with negative implications.” S&P is likely to make a decision this month on Hungary’s credit grade, currently at BBB-, the rating company said in a statement today. Fitch Ratings yesterday cut the outlook on Hungary’s lowest investment grade to negative from stable, joining S&P and Moody’s Investors Service. Hungary’s “unpredictable” policies, including the dismantling of checks on policies, levying of extraordinary industry taxes and forcing lenders to swallow exchange-rate losses on loans, are harming investment and growth at a time when the economic environment is deteriorating, S&P said.

Italy braces for new government, IMF warns Asia on euro - (www.reuters.com) In Tokyo, International Monetary Fund chief Christine Lagarde warned that if strains in Europe worsen, Asia would be negatively affected through trade and financial sector links. At a news conference after meeting Japan's Finance Minister Jun Azumi, she said: "...we touched on the economic situation in the euro zone, the way to address it, and the consequences that the euro zone crisis has and would have if it deteriorated further in the rest of the world, particularly in Asia." "I insisted with Minister Azumi that no country can be immune under the present circumstances, no matter how developed or how emerging or how far away it is. The countries are totally interconnected. That is what we see at IMF," she said. Her warning came after pressure from Washington for faster action from the currency bloc.

Thursday, November 24, 2011

Fannie, Freddie Regulator Defends Huge Bonuses - (www.cnbc.com) The regulator for Fannie Mae and Freddie Mac on Thursday defended their million-dollar executive bonuses which have come under fire given huge losses at the government-owned mortgage firms. Federal Housing Finance Agency's acting director Edward DeMarco said in a Nov. 10 letter to U.S. lawmakers the salaries and deferred compensation awarded to executives are necessary if the firms are to attract and keep talent required to run operations effectively. Slammed by losses from the precarious U.S. housing market, Fannie and Freddie have requested new aid on top of hundreds of billions of dollars in government support propping them up, raising questions about the bonuses. DeMarco was responding to a bipartisan group of 60 U.S. senators that wrote last week and demanded changes to the executive compensation practices that were put in place two years ago. "I need to ensure that the companies have people with the skills needed to manage the credit and interest rate risks of $5 trillion worth of mortgage assets and $1 trillion of annual new business that the American taxpayer is supporting," DeMarco wrote.

Alabama County Files Largest US Municipal Bankruptcy - (www.cnbc.com) Alabama's most populous county chose bankruptcy as a path to wrest control of its beleaguered sewer system from a court-appointed receiver, bolster its pleas for legislative action to prop up a massive revenue shortfall, and wipe away as much of its whopping $4.15 billion in debt as possible. Jefferson County's Chapter 9 bankruptcy protection filing on Wednesday — the largest municipal bankruptcy in U.S. history — gives it protection from its creditors while it develops and negotiates a plan for adjusting its debts. It could accomplish that by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan. But there are risks. Perhaps the biggest is the potential impact on the county's 658,000 residents, who could be asked to endure even higher sewer rates than were contemplated under the out-of-court deal with creditors that fell through. That's because the sewer debt, which represents the bulk of what the county owes, is secured against net revenues from the sewer system, and the court will determine how much of that debt remains on the books and how the county will repay it.

Solar Glut Worsens as Supply Surge Cuts Prices 93%: Commodities - (www.bloomberg.com) The cost of solar cells and microchips has nowhere to go but down because of a supply glut for the commodity they’re made from, a brittle charcoal-colored semiconductor baked in ovens at 600 degrees centigrade. Polysilicon has plunged 93 percent to $33 a kilogram from $475 three years ago as the top five producers more than doubled output, data compiled by Bloomberg shows. The industry next year will produce 28 percent more of the raw material than will be consumed, up from 20 percent this year, said Robert Schramm- Fuchs and Shai Hill, analysts at Macquarie Group Ltd. “Polysilicon is a grossly, grossly, grossly oversupplied commodity product,” said Paul Leming, director of research at Ticonderoga Securities in New York. “We’re staring at years of stability where polysilicon pricing sits at something approaching cost of production and doesn’t move.”

Permanent EU Bailout Fund Said to Face Delay on Bond Loss Clash - (www.bloomberg.com) European efforts to speed the setup of a permanent rescue fund have lost momentum amid a clash between Germany and France over provisions to force bondholders to share losses, three people involved in the negotiations said. Finance ministers failed to bridge divisions this week over the European Stability Mechanism, lessening the chances of activating its 500 billion-euro ($680 billion) war chest next July, said the people, who declined to be identified because the talks are in progress. Officials had hoped to bring the ESM’s start date forward to mid-2012 from its ultimate deadline of July 2013, the people said. Germany and the Netherlands are resisting pleas by France, Spain,Portugal and Ireland for the bondholder-loss provisions to be stripped from the ESM treaty, the people said. It’s possible that officials will still beat the July 2013 deadline, the officials said.

Too Big to Rescue Italy Forces EMU to Crossroads - (www.bloomberg.com) Italy is forcing Europe to choose between increased bond buying by theEuropean Central Bank or a possible breakup of the euro. Italian 10-year yields have breached the 7 percent level that locked Greece, Portugal and Ireland out of the capital markets and forced them to seek aid. With debt of 1.9 trillion euros ($2.6 trillion), more than those three countries combined, Italy has to refinance about 200 billion euros of maturing bonds next year and more than 100 billion euros of bills. The future of the European monetary union is at stake after bond vigilantes claimed their fifth political scalp by driving Italy’s borrowing costs to records, prompting Prime Minister Silvio Berlusconi to offer his resignation. ECB member Jens Weidmann said Nov. 8 his institution cannot print money to bail out governments.